Are you interested in getting a hard money loan to fund your next deal in Los Angeles? Delancey Street can help you with any amount of hard money lending you need. Delancey Street is a premier Los Angeles hard money lender, with over $100 million in funding done for clients. We have a pool of private money, ready to help and fund your next project. Our founding partners have years of experience doing Los Angeles hard money lending. Our hard money lenders can not only fund your next real estate project – but can also give you immense years of experience, and business assistance. If you’re unsure if hard money is right for you – then we can help.
What’s a Los Angeles hard money loan used for?
Hard money loans are referred to as a, “last resort,” depending on your situation. Experienced real estate investors know that when you want to purchase a property – you have to move fast. When you want to purchase a property within a few days, a hard money loan is the only way to go. Traditional loans take immense time, and it’s impossible to get funding within a period 3-12 days. Most lenders take 1-3 months.
Essentially, hard money loans are bridge loans – which are secured by real estate.
- Credit score doesn’t matter, because your creditworthiness doesn’t matter. The lender is only looking at your collateral.
- Lenders look at the collateral, meaning the real estate property itself, since it’s being used as a guarantee that the loan will be repaid.
- Because the property is being used as collateral, lender’s can move fast in making decisions.
- Banks don’t make loans based on collateral only, they look at ability to repay.
- Hard money lenders take a risk on you by offering to give you money, even if your credit worthiness is questionable.
This type of loan is used mostly by real estate investors. Banks tend not to make loans to investors because banks want to make loans where they are confident the loan will be paid back. They are not risk prone. In some cases, homeowners facing bankruptcy, or foreclosure, choose to take a los angeles hard money loan in order to get out of the situation they are in. People unable to get a home loan with a traditional lender can also get this type of loan.
What can I purchase with a los angeles hard money loans?
These loans can be used for property types such as single family home, multi-family residential homes, commercial property, land, and industrial properties. Collateral and personal finances are the two most important components a lender will look for when evaluating a borrower. Lenders don’t care about your credit, or credit report. Their primary concern is your ability to pay the loan back – via your personal finances, and the value of the property (in case they have to foreclose your property).
Lender’s often look at the loan to value (LTV) ratio, when evaluating a deal. Lenders prefer a low LTV, at no more than 70%. Most lenders prefer to lend at this level, because it means that if the lender has to sell the property – he/she has a good chance of getting their original investment back.
Pro’s and Con’s of Hard Money Loans in Los Angeles
Quick Approval: Lenders don’t go through lengthy credit checks on the borrower. They don’t look at that at all. Lenders evaluate borrowers differently than traditional lenders do. In most cases lenders will approve a loan in a few days if the collateral requirements are met.
Flexibility: Hard money loans can be used for virtually any type of los angeles hard money loan. Investors, and homeowners, are eligible for this type of loan. Only the most minimal underwriting procedures are used. Depending on the conditions, some lenders may provide 100% financing. It all depends on the deal, and if it makes sense on paper.
New Borrowers: Los Angeles Hard money loans are good for new borrowers who have limited, or poor, credit history. Hard money loans are great for borrowers who will not be approved by traditional lenders.
Disadvantages of Los Angeles Hard Money Loans
Costs: It’s not uncommon for interest rates to be as high as 15-20%. Origination fees can be 1-2% of the interest rate per month. Lender’s focus on making a profit, and getting their money back as soon as possible. These high costs provide a huge incentive for borrowers to pay back the loan as quickly as possible.
Short-term: Hard money loans have terms of 6-18 months. Traditional banks will allow 30 year loans, but hard money lenders don’t. If the loan isn’t paid back within the designated time period, the lender has the option to either increase their interest rate, or take possession of the property.
Loss of Property: Hard money loans in Los Angeles are secured by real estate. If you are unable to pay back the loan, or refinance the loan with a different lender, then the original lender can take over the property and sell it.
Where does money come from, in a los angeles hard money loan?
The funds in a los angeles hard money loan come from private investors looking to lend their money. Lenders charge a higher than expected interest rate. The source of the funds can range from an individual, to a group of investors who fractionally invest in your loan, or to a group of investors who have already pooled their funds and work with a commercial lending asset manager or broker.
When is the best time to use a los angeles hard money?
Borrowers should consider using a los angeles hard money loan instead of a traditional bank lender when you need quick access to capital. Gaining access to this quick capital comes at a higher
- The investor is looking to get a higher return than if they invest that into bonds, or savings accounts.
- The investor is taking on risk by investing in your project – so the interest rate will be higher. For example, a 20% loan to value loan on a rented commercial office building is less risky than a residential rehab loan with a 70% LTV.
Everything is negotiable, and it’s up to you to shape the deal.
Can I go to a traditional lender instead of a Los Angeles hard money lender?
You definitely can. Banks, however, require strong collateral, a proven history of good credit, and cash flow. In addition, banking institutions will make you go through a rigorous application process, and aren’t quick at decision making. Hard money lenders are the opposite of banks. They are flexible, and focus primarily on the collateral used in the loan. They can fund your hard money loan fast.
What are the Advantages of Los Angeles Hard Money Lenders?
When looking to get involved in real estate, many would-be investors believe the traditional path is the best (or only) option. They pack up their financial documents, head down to a local bank, sit with the loan officer for hours on end, wait 2-3 months for a letter, and then finally receive their money if they are approved.
Ask anyone who’s been there: that wait can be horrific.
Not only are you saddled by the crushing weight of wondering whether or not the bank will decide to take a risk on you, but that perfect investment opportunity that you saw weeks ago has already been snatched up by someone else, leaving you with a massive loan and nothing to spend it on.
A terrible thought indeed.
The savvy investor will begin to investigate alternative means of securing funding for their properties, one of those being a private, or hard money, loan. For those unfamiliar with the term, hard money loans are simply privatized loans that are secured using real estate as capital. While the rates are generally higher than traditional loans, they offer numerous advantages.
1. The Ability to Secure Funding Quickly
As mentioned above, traditional loans can take ages to secure, leaving you helpless to pounce on any opportunities you may encounter. Conversely, hard money loans can be secured quickly, usually within one to two days, and sometimes even on the same day. By law, owner-occupied hard money loans can sometimes take 2-3 weeks to clear, but that’s still lightyears of traditional loans.
The process for hard money loans is much more streamlined than traditional loans. The lender will examine the value of the investment property, determine the value of the property put up for collateral, investigate the borrower’s ability to complete the job, and then ask about the borrower’s ability to make payments. If all of these are satisfactory, the loan can be completed and the borrower is on their way. No fuss, no hassle, just money changing hands from lender to borrower.
2. The Ability to Secure Funding Easily
Banks are known for two things: having a long list of requirements that a potential borrower must meet to secure a loan and saying “no” a lot more than they say “yes.” Not only can the process of securing a traditional loan be frustrating, but it can also be a gigantic waste of time if they end up denying your application.
Hard money lenders aren’t concerned with any of the paperwork that goes along with traditional loans, making them perfect for people that have foreclosures or unpaid debts to their name. Moreover, people who are non-citizens but want to start their own investment property business may be denied because of their lack of a credit history at all.
Other groups that would be denied a traditional loan are people that are self-employed or people with less than two years of employment history at their current job. Banks tend to deem those people as “unlikely” to have the resources to pay back the loan and are flagged for being high-risk. Even investors that have a perfect track record of making payments but simply have too many mortgages on their record are usually denied as well. The criteria that banks use to flag people for loan denials are strict and usually arbitrary.
3. The Ability to Secure Funding At All
Banks are notoriously risk-adverse and anything that is wrong with the borrower or the property itself is usually cause for a loan denial. If the bank feels like the investment property is uninhabitable or dilapidated, they might reject the loan no matter how skilled or experienced the borrower is.
The life of a loan can also give the bank pause. Financial institutions love to make long-term loans that accrue smaller interest over time rather than short-term loans that have high-interest rates and are risky investments. For the borrower who is only needed a short-term loan to fix and flip a property, a long-term loan doesn’t make any sense. Also, in the event of problems during the renovation that may cause the project to get held back, the borrower may only need a short-term solution – akin to bridge loans – that can help the borrower for a few months.
Hard money lenders, many of whom are real estate investors themselves, are more open to unorthodox investment properties and are also more empathetic to various opportunities. They investigate each project individually and can approve or deny based on a variety of factors, not all of them having to do with making money off the interest of a loan. Banks don’t have the flexibility that los angeles hard money lenders do, nor do they have the vision required by many lenders to see the full vision for a project, making them perfect for people working in real estate.